Shares of Spirit Airlines (SAVE) fell as much as 64% on Wednesday, the most on record, as the budget airline explores a deal with creditors to restructure its debt amid a reported threat of bankruptcy after merger talks with Frontier collapsed.
On Tuesday, a Wall Street Journal report said the airline is preparing to file for bankruptcy protection, a filing that could happen within weeks if tie-up talks with Frontier fall through.
This report followed a separate statement from the company late Tuesday, which said it was in “constructive discussions” to reach a restructuring deal with the holders of its senior secured notes due in 2025.
If an agreement is reached with creditors, it is “expected to result in the cancellation of the company’s existing equity,” Spirit said. If no deal is reached with bondholders, the carrier says it will consider all alternatives.
Spirits stocks are down more than 90% this year.
Spirit also said Tuesday that it would not be able to file its quarterly results for the period ending Sept. 30 as restructuring negotiations also diverted significant management time and internal resources from completing its financial statements.
The airline is struggling to get out of a mountain of debt, because merger talks with other airlines have not gotten off the ground.
Last month, Spirit and Frontier reportedly revived merger talks. Initial partnership talks between the two airlines in 2022 ended after JetBlue (JBLU) outbid Frontier. However, the JetBlue merger was blocked by a federal judge in January due to antitrust concerns.
Wall Street has become increasingly bearish on the airline, with analysts maintaining a zero buy rating, four hold recommendations and eight sell recommendations on the stock, Bloomberg data shows.
TD Cowen analysts lowered their full-year estimates on the assumption that the airline will “shrink significantly during a restructuring,” said a client note on Tuesday.
“[Tuesday’s] news also creates the risk that customers will book outside the airline, resulting in even greater pressure on liquidity,” wrote TD Cowen analyst Tom Fitzgerald.
“In the event of a restructuring, the focus will then shift to the fate of Spirit’s fleet,” Fitzgerald added. “We expect the airline to sell the remaining encumbered assets to pay off related debt on the aircraft and work to decline leases on the remainder of the fleet.”
Last month, Spirit said it would lay off more than 300 pilots in January and sell older planes to cut costs.
